Q3 2019 Earnings Call
The conference operator.
Welcome to the RLJ lodging Trust third quarter 2019 earnings Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions. If anyone should require operator is concerned the copper. Please press star zero on your telephone keypad I would now like to turn the conference over to kill Bella RLJ, Vice President Finance and Treasurer. Please go ahead.
Thank you operator.
Good morning, and welcome to RLJ lodging Trust 2019 per quarter starting school.
On today's call that's the Hill, our President and Chief Executive Officer will discuss key highlights for the core.
John Modi, our executive Vice President and Chief Financial Officer.
Got the company's operational that's what I heard results and guidance.
Gardener, our executive Vice President of passive management they'd be available for Kuni.
Forward looking statements made on this call all subject to numerous risks and uncertainties that mainly the company's actual results could differ materially from what had been communicated.
Factors that may impact the results of the company can be found in the company's thank you and other reports filed with the as easy.
The company undertakes no obligation to update forward looking statement.
Also as you just got certain non-GAAP measure it maybe helpful to review the reconciliations to GAAP look at enough personally from last night.
I will now turn the call over to lovely.
Thanks, Nick you good morning, everyone and thank you for doing that.
During the third quarter, we continue to build on the momentum from our portfolio transformation.
We made meaningful progress by executing on a number front end generated solid operating results I'm it slowing operating trends.
This includes.
Yes ill be 18 asset noncore portfolio that we previously announced and selling one additional until September .
Executing the final termination agreement for eight Wyndham hotels.
Repurchasing $47 million of shares during the quarter.
Maintaining a low levered balance sheet with net debt at only 3.2 times EBITDA and despite choppy fundamentals, achieving revpar, which was largely in line with our expectation.
We're pleased with the progress we made in light of a moderating economic trends in the third quarter.
Which were hampered by the uncertainty associated with the trade wars and geopolitical event.
Key indicators, such as business investment softened further which continued to constrain business transient demand.
And although the U.S. consumer remained healthy.
The growth in the consumer spending decelerated from prior quarters, which likely impacted leisure transient demand.
These trends resulted in overall lodging demand softening during the third quarter, especially in the urban and top 25 markets.
Against this backdrop, our third quarter Revpar declined slightly by 0.3%.
Our performance was also impacted by Hurricane Doran as a slow moving hurricane constrained demand for several days around the heavily travel labor day weekend diminishing the positive lift we expect it from the Jewish holiday shift in September .
Additionally, consistent with a broader trends in the industry, we experienced a softening in the corporate transient segment across most of our markets.
Despite these headwinds we're pleased that we outperformed the urban segment of the industry as well as a top 25 markets and also gained market share.
Our outperformance was led by strong growth in a number of markets.
Including knows we invested significant capital last year.
Among our top markets.
We will achieve robust revpar growth of 43%.
Driven by our Louisville Marriott downtown.
Which benefited from a strong in house group base.
And the ramp up the newly renovated Convention center.
We expect this strong performance to continue through the fourth quarter.
In Austin, where there are proof footprint in the CBD or hotels achieved strong growth of 11%.
What is significantly outperformed the overall market.
Our hotels benefited the compression created by strong citywides and healthy business transient demand.
We expect some of these positive trends to continue the remainder of the year.
Our hotels in D.C.T. solid revpar growth of 3.2%.
Benefiting from strong in house group demand and compression created by a number of events in the CBD.
During the quarter, we improved our geographic footprint in this market by selling one additional noncore hotels.
Looking ahead, we expect growth to moderate in the fourth quarter due to fewer citywides and renovations at one of our hotel.
There was another market, where our growth profile improved through the cell several non core assets.
Our hotels achieved 3.2% revpar growth during the third quarter.
Benefiting from one large city wide and strong corporate demand.
Looking to the fourth quarter, we set our performance to moderate due to fewer citywide.
Our hotels in Southern California also achieved positive revpar growth <unk>, 0.9% during the quarter.
Helped by strong in House group base and leisure demand over the weekend.
However in light of a softer citywides in San Diego and one hotel under renovation, we expect our revpar to contract in the fourth quarter.
In New York, our Revpar declined by 2.4%.
Although September benefited from the timing of the Jewish holidays July August were weak due to a combination of soft business transient and leisure demand.
The Jewish holidays fall in October we are expecting a soft fourth quarter.
Our Chicago in Northern California markets were both impacted by fewer Citywides this quarter.
With revpar declining by 2.6% and 3.2% respectively.
Although we had expected softer business transient trends during the third quarter in Northern California.
We experienced incremental softness which has continued into the fourth quarter.
We expect Chicago to remain soft during the fourth quarter given fewer citywide.
Finally, our south Florida market was impacted by approximately 350 basis points from Hurricane Dorian and one renovation.
Given the softness in international travel trends and new supply, we expect revpar to contract during the fourth quarter.
Hurricane Dorian also impacted a number of other markets such as troughs in Tampa, New Orleans in Atlanta.
Despite these headwinds we're pleased that many of these markets achieved robust revpar growth with Tampa, New Orleans, and Trason, achieving solid revpar growth of 15% pinpoint 2% in 5.3% respectively.
With the sale of the noncore assets or increase concentration and these long term both markets further amplifies the overall pru geographic footprint of our portfolio.
Now with respect to transactions and capital deployment.
As expected we closed on the sale of the 18 asset portfolio in August and sold and additional noncore hotels in our DC market for almost $13 million.
We've been pleased with the execution of our noncore dispositions this year, which achieved be strategic benefit of elevating our growth profile.
Unlocking meaningful embedded value and positioning us to drive any the appreciation over time.
Our current portfolio is largely aligned with our long term vision.
Our successful asset sales have created significant investment capacity with a number of levers. The pool, we are actively working to deploy this capacity thoughtfully.
By continuing to repurchase our shares which we regard as a highly accretive tool.
By investing in ROI in brand conversion opportunities, including the window portfolio, well, we're making significant progress and see strong interest from brand.
And by pursuing incremental opportunities to reduce our cost of debt.
Such as exploring the refinancing of the 6% they'll core bonds, which are callable in mid 2020 and represent an opportunity for substantial interest expense savings.
We expect the deployment of our investment capacity to benefit our 2020 earnings.
As we deploy capital we will continue to take a highly disciplined and thoughtful approach to capital allocation.
Turning to outlook for the remainder of the year.
We expect the softening in the lodging demand that the industry experience in the third quarter two continued throughout the fourth quarter.
We also expect international travel in many markets remain constrained in the weakness in corporate demand to be amplified by the shift the Jewish holidays to October .
These factors are expected to disproportionately impacts the urban and top 25 markets.
As it relates to our portfolio, we expect recent industry trends to more than offset the strength in citywides and in house group in many of our markets, such as Northern California, Louisville, and Tampa during the fourth quarter.
As a result, we're reducing the top end of our Revpar guidance, which implies a 50 basis points reduction at the midpoint from our previous guidance.
Despite slowing fundamentals, we're very pleased with the successful transformation of our portfolio.
Which has improved our platform and strengthen our balance sheet.
We are well position with a portfolio of rooms oriented high margin premium branded hotels in growth markets.
Further we have substantial investment capacity are working to unlock the embedded value within our portfolio.
Therefore, we believe that we can't generate incremental shareholder value despite of a choppy macro environment.
I will now turn the call over to Sean for more detailed review of our operating and financial highlights Sean.
Thanks lightly.
Before discussing our third quarter results.
Please note the following.
Our third quarter and year to date operating results include our hundred eight owned hotels as of September Thirtyth.
And exclude the 18 hotel portfolio and the residents in Colombia, which were sold during the quarter.
Our reported corporate adjusted EBITDA and FFO only include operating results from sold hotels during RLJ the ownership period.
With these housekeeping items out of the way.
Our third quarter Revpar contraction <unk>, 0.3%.
It was driven by <unk>, 0.8% decrease in average daily rate.
Partially offset by a 0.5 percentage point increase in occupancy.
Monthly Revpar results were flat in July .
With revpar growth of 0.1%.
Followed by contraction of <unk>, 0.5% and 0.4% in August and September respectively.
We were pleased that the portfolio outperformed the upscale urban and top 25 markets.
And gained 50 basis points of market share from their competitive sets during the quarter.
Our third quarter Revpar growth was negatively impacted by approximately 40 basis points from Hurricane Dorian in September .
Total revenue grew 2.6% during the quarter, which exceeded the change in revpar due to a 4.6% increase in food and beverage revenues and and 8.1% increase and other departmental revenues, which was driven by the continued success of parking and other raw.
Revenue initiatives.
From a segmentation standpoint, our third quarter benefited from a low single digit increase in grew revenues.
Which was driven by outperformance in Louisville and Tampa.
These markets were partially offset by San Francisco.
Which was impacted by the shifting of a week long citywide into the fourth quarter.
That said our group segment only represented approximately 17% of our third quarter room revenues.
The positive grew results were more than offset by a low single digit decline in transient revenues.
However, we continued our strategy to partially mitigate the soft transit demand trends through Backfilling with group and contract business during the quarter.
Turning to the bottom line.
Our third quarter pro forma hotel EBITDA was $113.6 million.
Please note that our third quarter pro forma hotel EBITDA was negatively impacted by approximately $2.3 million as a result of hurricane Dorian.
And the sale of the residents in Colombia.
In terms of our operating margins, we were pleased that our asset management cost containment initiatives limited the increase in third quarter operating costs to only 1.4%.
Which limited our hotel EBITDA margin contraction to 60 basis points.
Our team is continuing to implement best practices to manage productivity and labor cost and its full employment environment.
Our third quarter operating results translated into adjusted EBITDA of $106.3 million.
FFO per share a 46 cents.
Our third quarter, adjusted EBITDA and FFO were reduced by the sale of the residents in Colombia.
And the timing of the sale of portfolio 18.
Which closed a couple of weeks earlier than expected.
The total impact of these items was approximately $1.1 million.
Turning to our fortress balance sheet, we ended the quarter with $2.2 billion of that.
Approximately $845 million of unrestricted cash.
Net debt to EBITDA of 3.2 times.
We continue to maintain significant flexibility on our balance sheet.
As of the ended the quarter approximately 100% of our debt is fixed or hedged at 89 of our 108 hotels are unencumbered.
Representing approximately 80% of EBITDA.
We will continue to explore opportunities to further ladder out maturities and lower interest expense.
As it relates to capital expenditures, our full year capital program remains on track and on budget.
We continue to expect $90 million to $110 million in 2019 renovations and expect full year renovation related displacement of 40 to 50 basis points.
Now, let's turn to recent activity under our share repurchase program.
Since the beginning of the year, we have repurchased 4 million shares for approximately $68 million.
At an average price slightly above $17 per share.
We currently have approximately a $192 million of remaining capacity under our share repurchase program.
Looking forward for the balance of 2019, we expect to continue returning capital to our shareholders through share repurchases and dividends.
Our recent dispositions created significant investment capacity.
As you would expect we will remain highly disciplined as we deploy capital.
We have a range of highly accretive alternatives to pursue including share repurchases.
Multiple brand conversion opportunities, including be a wyndham hotels.
And high impact ROI opportunities.
We are finalizing our 2020 capital allocation plan.
Which will include the deployment of a portion of our investment capacity.
We remain committed to continuously evaluate capital allocation alternatives based on changes to market conditions and the relative value of capital allocation alternatives.
I would now like to provide additional color on the assumptions underlying our updated outlook.
Although our third quarter was in line with our expectations.
The recent softening trends in fundamentals have continued into the fourth quarter.
Our revised outlook incorporates the sale of the residents in Colombia and.
And our third quarter actual results.
Including the impact of Hurricane Doran and the earlier timing of the sale of portfolio 18.
In addition, we incorporated the following assumptions into our revised outlook.
We expect their recent softness in business transient will continue through the fourth quarter.
We now expect flat revpar at our northern California hotels due to softer than expected demand trends.
Despite the favorable citywides and easy comp to prior year strike in San Francisco.
We continue to expect Louisville to outperform.
Driven by the continuation of post renovation ramp up and strong group production at they Louisville Marriott.
And finally.
We will be impacted by soft citywides in Washington, DC, Chicago, Houston, and San Diego.
Based on these trends we concluded that the high end of our prior guidance ranges, we're not achievable and reduce the high end of these ranges while maintaining the low end of the prior ranges.
Our updated Revpar outlook implies a 50 basis point reduction from the midpoint of prior outlook.
For 2019, we now expect revpar growth to range between flat and up 1%.
Hotel EBITDA margins in the range of 31.6% to 32.2%.
Consolidated hotel EBITDA to range between $448 million and $460 million.
Adjusted EBITDA to range between $453.5 million and $460.5 million.
And adjusted FFO per share to be between $1.98 and $2.04, which incorporates shares are purchased to date, but no additional repurchases.
Our revised outlook assumes no additional acquisitions dispositions refinancings or share repurchases.
Please refer to the supplemental information, which we posted on our website last evening and includes pro forma results for our 108 hotel portfolio over the past four quarters.
Thank you and this concludes our prepared remarks, we'll now open the lines for culinary.
Operator.
Thank you, ladies and gentlemen, if you'd like to ask your question. Please press star one on your telephone keypad economy should total indicate your line is in the question Q you press star to she'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys, one moment. Please let me pull for questions.
Our first question comes from the line of Austin Wurschmidt with Keybanc capital. Please proceed with your question.
Hi, good morning, everybody.
With the Wyndham transaction now finalized I was wondering if you could give us a better sense around the mechanics behind how the loss or the NOI guarantees going to flow through the pan out.
Just curious if that $10 million goes away Jan Jan one or if it's more of a gradual decrease as the conversions are underway.
Hey, awesome. Thanks for the thanks for the question [noise].
So last call we were able to finalize it is like puts as I discussed in my prepared remarks, and we've been able to structured in it the deal in a way said, it's going to allow us to recognize a a similar contribution into any 20 and we received in 2019 for the termination payment said differently often we don't expect.
Any drop in EBITDA as a result at the termination of the Wyndham guaranteed and 2020 you know the mechanics are you know kind of technical but you know said you know as long as Wyndham is involved will be amortizing that payment over there and moment.
Got it appreciate the clarification there and then how far along are you at this point respect to identifying which Wyndham hotels you'd like to reposition first and what brands you think might make the most sense.
Yeah, Hey, Austin, we're Super excited about this opportunity and really think there's great value here as we've discussed on many calls we're in active discussions with a major brands that you would expect us to be with you know Hilton Hyatt Maryann I see you know, we the process of revealing proposals and narrowing down the brands we've had great interest.
We expect to be in a position to finalize the brand selections for several of the hotels by the end of this year early next year, I'm, which would put us in a position to be able to commence renovations on one or two of the assets next year I'm you know our ability to comment on.
You know the size of the renovation and the duration is really going predicated on final brand selection, which we expect to have and so we look forward to be able to provide more color on that on our next call.
As the softer operating environment change your thinking about the timing of the rebranding zohr or just any of the sort of high impact ROI opportunities that you mentioned in the prepared remarks.
No you know you know maybe sort of think about the span of ROI projects that we have you know we've identified a number of projects and when that we've sort of classified as 150 to $2009 and they span from obviously the conversions, we talked about but also the space Reconfigurations operating ROI is an energy.
Our lives and so if you think about space reconfiguration.
Paying taking a pool, which is a non revenue generating at space and converted into meeting space. There's no risk in that because it wasn't generating any revenue before us anything incremental will create value thinking about it from an operation perspective in adding parking I'm you know limited risk associated with that because you know you you weren't charging before it and now you're charging for it.
And also from an energy perspective, you didn't seem to have energy cost, regardless of where we're going to cycle. So no. It hasn't changed our view on 'em deploying capital from ROI on perspective.
Got it thanks for the time.
Thank you. Our next question comes from the line of Michael Dallas I always Baird. Please proceed with your question.
Good morning, everyone.
Good morning.
Just kind of on that same topic of capital allocation kind of can you give us an update about where acquisitions fit relative to other returns that you'd see on on the ROI projects in the buybacks that you're doing today.
Yeah, you know the capacity that we have a in a sense of our balance sheet really provides optionality, Mike and so you know we don't really think that our ability to deploy capital is mutually exclusive having said that as we look to be balanced and thoughtful yeah. We are going to look at relative returns across the various options and so.
So from our perspective, why acquisitions aren't necessarily off the table.
We do recognize it the bar as higher for an acquisition and that's got to be accretive on a number of fronts rights accretive on the operating metrics for Revpar perspective accretive on the growth profile accretive on a geographical footprint benefits for overall portfolio and it has to have catalyst create value with any asset in terms of why we're buying it and then of course you need to fit in the mid.
All the fairway in terms of what we like to invest in which is rooms oriented high margin and premium branded hotels and so it's not off the table, but we do recognize on a relative basis is the bars higher you know in terms of the other avenues for deploying capital you've seen that we've been active on the buybacks were gonna continued to be active on the buybacks obviously market conditions.
Tons will dictate the volume.
And also you know obviously the discount to our Navy as well. So we'll continue to be active on that you know. Additionally, we're going to continue to look at opportunities on the balance sheet side relative to the bonds that are coming due next year.
And so you know what I would say is is that the strength of our balance sheet an amount of capacity. We have gives us the opportunity to optimize our our capital deployment across the spectrum of buybacks investing in our ROI is as well as acquisitions it except that they materialize.
Okay. That's helpful and then on the flip side the disposition activity that you guys have completed obviously better underlying more concentrated real estate today, but can you maybe help us understand higher mix of business has shifted because of the asset sales how much more exposed there you to the corporate business traveler how has.
Group mix shifted.
Following the asset sales any.
Until there would be very helpful.
Sure Mike This is Tom Barth net.
So as far as the mix of business our portfolio hasn't really shifted that much when we look at the portfolio. We still have about the same amount of group percentage.
Well, we attract about 17% to 20% of the group side, we have had the shift though if you will based on what's happening on the business transient side to try to group up as well as put more contract business into our hotels and even in a in a phase one we're looking at you know at our full service hotels, one of the biggest era.
As for capital allocation as some of these reimaging of our embassy suites, which is allowing us to try to change the mix based on what we're doing with our lobby other evolutions by gaining more space and having that opportunity to get more group business, which we think will help us ultimately change the mix a little bit and get a higher rated as well as catering for.
Our occupied room to to be able to provide more profitability. So.
The disposition certainly have helped us on an overall revpar, but when we look at mix and segmentation that hasn't really shifted that much. When you look at what we still do and what we have to do to become profitable.
Yes.
Oh helpful. Thank you.
Thank you. Our next question comes from the line and Anthony Powell with Barclays. Please proceed with your question.
Hi, good morning.
Could you provide an update on where the Knicks dance stands in the sales process and what's your appetite for additional noncore asset sales given your demeanor truck capacity right now.
Hey, Thanks, Anthony you know on you know additional asset sales look we've as we mentioned on our last call. We really completed the heavy lifting around reshaping our portfolio with the dispositions we did over the summer and the vast majority of our EBITDA. We own is aligned with our long term division you know, we're going to two on a four basis be more.
Opportunistic.
In terms of asset sales and you saw us do that on Colombia, Oh. It was an asset that from a location perspective was not core to us and that it was opportunistic because he management agreement was rolling and we had a chance to sell it unencumbered I'm. So that as an example, being opportunistic on on future asset sales.
Look as it relates to to the Nick you know, we have executed well in all of our dispositions and we've exceeded our targets as it relates to the Felcor legacy RLJ assets, we have significant capacity and strong balance sheet, what gives us which gives us ability to remain disciplined Anthony and we have a high conviction in a in the value of this asset and we're gonna.
To be patient you know this is an asset that's iconic it's in irreplaceable location, a and it's in a market that we believe in long term and then it continues to perform well it was up one point they present and third quarter, it's up 4% I'm here today, and so we're going to be patient and Anthony as it relates to this asset.
And we believe it will get the value ultimately.
Hi, Thanks, and onset still the fundamentals.
International inbound a lot on Mccall or what's your international mix currently and where do you think we are in kind of the headwinds for that segment.
Can we be flat and that business next year or do we expect continued declines there.
So in Anthony is the answer the first one of your question International's about 2% of our overall portfolio with the biggest markets being New York, what's about 18% to 20% and South, Florida, which is about 10.
And we think it's gonna continued to be a headwind obviously the dollar continues to be strong and you know obviously, they're rhetoric coming out of a you know government. These days is not a not helpful as well and so we continue to see it as a headwind across some markets. We're also seeing softness in Houston related to that as well in the medical center, which gets a lot less.
No inbound associate with that I'd also like I imagine L.A. insight in San Francisco as well.
And just on that last one San Francisco, you mentioned that you expected to be flat despite the salesforce.
Shifting into the quarter, well, what's driving back that rather sharp reduction and expectations there.
Sure. Thanks, Anthony I mean, I think our view on northern California.
Throughout the year, particularly the third and fourth quarter. It had a great started the year in northern California.
At our expectations in the third quarter started mute muted because of the timing Salesforce and we underperformed relative to what we would have thought at the beginning of quarter by cost 300 basis points in the third quarter and we took a similar.
Adjustment to our expectations for the fourth quarter and so you know I think what's driving that is not the citywide activities as such which was known it's that incremental business transient traveler within within northern California that is that is impacting our portfolio. If you drill down a little deeper the CBD assets.
Thats within San Francisco are still performing well and we expect them to perform well.
Within within the fourth quarter.
But what we're seeing some softness is in is in some of our Silicon Valley assets.
Which are being impacted there isn't renovation disruption later in the fourth quarter, which is impacting our fourth quarters level, we do that but it's really it's fair, it's the demand going out to that.
There's other northern California markets.
Thank you.
Thank you Sir our next question comes from the line of Wes Golladay with RBC capital markets. Please proceed with your question.
Good morning, everyone I just want to look at the capital deployment for next year. Obviously, you highlighted the stole core bonds something you could potentially take out with the initial plan to be to refinance that or would you look there is to pay off well using cash until you find other uses for your cash pile.
Thanks, Wes we're evaluating alternatives right now we have visibility on to our balance sheet cash Terry to deleverage. If we want to there's a great value creation from refinancing at current rates for corporate debt would be about 300 basis points inside of a of where that that sits today.
Hey, what's realizes on annualized basis call at $14 million of interest savings, but we're going to make that call next year based on where where we read the tea leaves with respect to the financing markets.
But we are confident that theres significant interest rate savings there just a function of whether.
You know like for like auto auto refinancing or why do we de leverage a little bit as part of that and we'll be able to walk more color on that here early in 2021 were from running vision.
Okay, and then kind of get your outlook for supply next year, what markets data is getting better or maybe a little worse.
Yep, So a lot less what I would generally say, though is is that you know.
We generally expect overall I'm 2020 to be similar to 2019 lines are really blurring between years and so beginning of year projections are generally off so I wouldn't you know just keep in mind.
But you know we're seeing deceleration in several markets on supply side, Denver, Houston aren't Louisville stand out.
And then are you know our biggest supply headwind is in Austin, you know expected to be kind of up seven 8%, but what I would say to you about Austin is that you know Austin continues to surprise to the upside demand is expected to be up 8% next year. Austin just continues to find ways to to find demand in that much.
Again, and so we believe in that market long term and then our position is also better within the Austin market, because we have greater concentration in CBD post ourselves and so while the absolute number is higher opposition relative to us lot supply as much better and so weve you know we feel good about awesome.
Okay, and then maybe sticking with the supply being pushed out a bit are you seeing any delays and what it takes to complete renovation for your assets.
No we're not seeing delays I mean, you know obviously I think we've been in sort of a higher labor costs higher material cost for awhile and so that's baked into our plans with enough cushion enough reserves to to get the projects done on time on schedule relative the way that weve planned I'm. The renovation, we have a very experienced.
In house team that has executed very well both on normal renovations and also conversions, we have an extensive history about being able to do it and I think the thing that makes us unique is that we have a full in house team design and execution.
Got it thanks.
Thank you Sir our next question comes from the line, Chris Woronka with Deutsche Bank. Please proceed with your question.
Hey, good morning, everyone.
Yes.
Ancillary fees have definitely been a a great tailwind for for you all many your peers I guess I know, it's hard to model a little bit, but but is there a short tail that do you think to the level of upside you've been getting from from those can continue for the next couple of years.
So we've been very focused on ancillary revenues and we're been very pleased with so far many of those are returning a great investment based on some capital we're putting against it so from a modeling I'll, let sean handle that but let me tell you a little bit about the examples that we think are going to continue to be positive for us.
Certainly on the food and beverage we've had growth in quarter three were up 4.6, we continue to see the benefits of the lobby renovations that we talked about earlier, making it more beverage centric deliverable for our embassy suites and now when we think about our a other revenues in the catering and banquet space, we've been spending money.
In Miami, Boston, Charleston, Louisville, as well as Union square in our borrowing renovations, which has really returned a a better group mix for us in regards to how we're able to benefit on the food and beverage size, we continue to see food and beverage as an opportunity and then even with the Wyndham conversions, we will potentially have opportunities depending want upon what brand we pick to do so.
A more space reconfigurations within that portfolio.
The park in initiatives I know Leslie referred to it earlier again, we continue to be up to prior year spending a little bit of capital to make sure that we have you know arms to when people come in so theres no labor at the a at at the location, where we're having parking and even with Uber and Lyft, we still see lift knowing that we're going to have an opportunity to to be an array.
Urban markets, where people need to to drive in many locations and then lastly on the miscellaneous whether its attrition cancellation fees.
Upselling an opportunity to based on room configurations, we think that that will still continue to drive more revenue from a from a you know miscellaneous standpoint, which is really bankable revpar at the end of the day.
And then Chris I'll hold on to a couple of Tom's comments, one specifically with the parking parking is a subset of our ROI initiatives and we are we have a lot of runway left within the portfolio to continue to drive parking revenues throughout the portfolio and we think we have we have several years.
Initiative that we're going to pull through there and so we continue to be confident there. The other thing that I'll note for our portfolio, maybe relative to some or other peers is that we are less exposed to the risk of sort of resort facility fee into the which is an industry risk just because the nature of our portfolio. There's just not a big part of our ancillary.
Revenue that it would be maybe for some of our peers and so when I. When you think about sort of those other revenues and allow lift folks are getting.
That's not the key part of our story like it would be for some others and so that gives us more confidence in.
The sustainability of that other revenue growth.
Okay, Great appreciate all color and then.
Understanding that the right that the negotiations with brands are still ongoing would you expect to get key money or at least some form of downside protection.
You are going through those renovations next year or into 2021.
So you know keeping my we're in active discussions and reviewing proposals right now, but I would say to you absolutely expect that key money would be apart of our of our negotiations and in some form of.
Of other opportunities, maybe horsetrading, but we'd expect it to get some sort of support from the brands.
Yeah.
Okay, Great and obviously lot of progress on the asset sale front.
Couple of years I guess you are by definition, you always kind of have a bottom 10%. So.
What's your kind of appetite to continue pruning the portfolio.
As the cycle moves on and private market pricing remains really strong.
You know as I mentioned before you know, we're not actively marketing any assets, but we will be opportunistic in terms of selling assets, but the reality of it is with 100 plus assets you have to be you know active portfolio management you know all the time and so you know we'll be looking at our portfolio over the coming years.
Determining whether or not we need to prune something but right now we're not a we're not active we'll just gonna be opportunistic if the opportunity presents itself to you know traits and the incremental assets and it's just to add on to analyze these comments, Chris we're really happy with where our portfolio sits today, we've done the heavy lifting on the dispositions this year and that was intended to go.
The portfolio, where we wanted to be long term and so no. We didn't likely his prepared remarks. You know this you know the statement that that the portfolio generally aligns with what we want long term and our vision you shouldn't be lost in the group that's important to us and would pick for through the heavy lifting.
Okay very good thanks.
Thank you. Our next question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, guys good morning.
Good morning.
Tom question for you our embassy suites as your biggest brands and obviously the configuration of those is such that are that you serve the hollow middle of the hotel lot of open space can you just maybe talk about your current and future plans.
What they are for.
Maximizing you know the space or revenues reconfigurations, adding rooms, what it or whatever it may be just given that does that is.
Such a big part of the portfolio in opportunity.
Yes, so thanks Neal for the for the question, we've met with Hilton and had numerous conversations about what we want to be and if you think about the elevations that you talked about what existed in the initial build was quite ponds tremendous amount of landscape a water features.
I'm not useful space, but pretty space to take a picture and have an opportunity for people to really enjoy that atrium, but not utilize the space as much as what's happening today from a consumer standpoint, so what we've done as we have a really changed the elevation to be able to be one elevation where people can utilize this.
Space throughout and then created kind of public private space to whether that's the comp breakfast or the actually opportunity for their evening reception and then bring our restaurant or beverage space out into the lobby. So people want to spend time, there and actually be more transactional. So we've had some concepts called taste in tap into having on the food and beverage.
Outside and actually it provided a much better environment to be able to purchase alcohol spend time and create some camaraderie with the groups that were attracting in addition to that when you change that elevation you actually add meeting space. So for instance, if an embassy has 300 keys with 7500 square feet you could you only in the past pro.
Well the service and maintain that group by using your ballroom or your breakout space now with the open area atrium, you're now serving lunches receptions and using that spaces additional meeting space. So you can actually booked two groups in your borrowing and then use the atrium for that additional space. So we think thats proof positive and <unk> and the.
Other thing that we've done is from room configurations, we do have part of ROI actually taking a few rooms back at you know by getting some additional keys, which is an immediate ROI in locations that we think are are gonna be proof positive from an occupancy standpoint, and the ability to fill in a a pool, which we had two in bucket, which is allowing us to create another.
2500 square feet in bucket mid mid week, that's a real positive for us to be able to drive that BT special corporate and group that can produce a better catering productivity force. So that's some of the things that we're doing in our embassy suites to be able to create a different value and attract a consumer that quite honestly midweek will will drive a higher average.
Right.
Yeah Neel. This is Sean with respect to have you ever says listen this is a focus item for Hilton if it's a big part of their system and where a large owner of of embassy suites relative to the system. So we have have spent a lot of time with Hilton and one and and are believers in the reconcepting the public space.
That Tom mentioned that will allow us we think is that upside potential within our portfolio.
To drive incremental group business et cetera, you know within within the brand, but Hilton has done a great job.
In the how they repositioning the brand you know for the next 20 years as we think about what what embassy suites going to be all data. We are and we are a critical part of that discussion within within Hilton and so I you know when you step back and think about where embassy suites fits in with our portfolio. It's a core holding for RLJ.
And and knows.
We continue to invest capital within those assets, we see a lot of upside over the next caught one to five years within our portfolio as we remix those hotels.
Thank you guys for that I appreciate that.
And maybe lastly for you.
Can you just maybe give a breakdown of the the leisure.
And the business transient guests are demand kind of since July I know trends of demand has slowed any incremental color or a anecdotes things you're hearing that would lead you to believe it there's inflect inflection point coming either a negative or positive that'd be great.
So now so I understand your question are you asking for sort of what are they at what are the data points that we're seeing that would suggest that there in softness and leisure side is that where you're asking.
Well I mean, yes like leisure or.
ER business, which obviously has been document, but yet either of those and then I'm, saying since you talked about weakness into the fourth quarter and I'm, just saying have you seen on anything incremental that will lead you to believe that okay. You know, we havent quite bottomed out in terms of weakness, but we're actually getting worse or on the inverse we've kind of maybe been through the sort of law and maybe will.
Come back a bit.
Yeah, I would say look in in general you know the theme here is deceleration right on a number of fronts. Obviously, the economic backdrop is decelerating as we saw it from a GDP perspective, we saw business didnt spend down a point in the half a in the quarter as well and that is impacting business transit, which is a well discuss topic.
And then we on the consumer so I wasn't some remains healthy we did see consumer spending decelerate.
Quarter over quarter, and we believe it that is having an impact on the leisure side. When we look at the data points from standpoint of weekend versus weekday we saw some drops there on a trend bases on occupancy side that would suggest that there's weakness in cracks. There you know a associate it with the with the the leisure traveler and so.
When you look at demand being down year to date 50 basis points. It and you look when you drill down even further and look at where the urban markets and the top 25 markets, where we most of US reach play and the degradation of performance. There you know the trend is it's clearly there we think that it's going to persist and that's why you know obviously, we in most of our peers.
Down our guidance to reflect that.
Got it okay begin or anything incremental about like either from your like major.
Ah business contracts or corporate or anything like that that would lead you to indicate things are changing.
Maybe like a weaker negotiated rates for next year or you know cancellations anything like that.
Yeah actually just the opposite and the special corporate area for instance, when you you know negotiate with the IB MD eightys in the folks that have a discount based on volume production, we actually were up in quarter. Three so that was a proof positive that you know it's continuing to have demand in regards to what so what we're expecting I would.
Think similar trends would happen into Q4 based on what we've seen early indications as well as what we're looking for 2020 with low single digits is what we're hearing from our management companies regardless of the negotiating for for next year's results and a lot of that is really dynamic pricing versus fixed pricing trying to sell.
Jeff based on how bar flows in regards to what you're quoting.
To be able to take advantage of high demand days. The other thing on the leisure side, which I think as you know sometimes people forget but when a hurricane happens in specifically in our portfolio. We had nine hotels in South Florida, then two in Charleston that had a mandatory evacuations over labor day weekend. So a lot of Q3 leisure was related to that 11 day.
As of a stalled hurricane that unfortunately people were waiting to see where to go and where to what the travel around so you know we're still thinking leisure is positive our embassy suites portfolio really has that value proposition on leisure. So we think thats a short term blip on the leisure side in regards to what heck what occurred in Q3.
Just to give you a little bit more color.
Thank you guys appreciate that.
Thank you ladies and gentlemen. This concludes today. So I decided this concludes today's session I would now like sort of comes back from the tail for any closing comments.
We want to thank you all for joining US today, we were pleased to be able to report another quarter or progress. We look forward to see many of you guys next weekend, they read and contain that a discussion I'm around all the activity at we have within our portfolio.
Thank you bye.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.